Police in the central Tuscan town of Prato, home to the country's biggest Chinese community, carried out 111 raids in an operation dubbed "White Collars".

The swoop came as Prime Minister Matteo Renzi prepared to host Chinese President Xi Jinping, who was to stop on the Mediterranean island of Sardinia later on Wednesday on his way to Peru for a summit.

Some 50,000 Chinese work in Prato, many in textile firms which depend on the labor of illegal immigrants. The businesses are often accused of ignoring safety rules and evading taxes.

A total of 83 people were placed under investigation on Wednesday. Two Chinese nationals and one Italian are in jail and a further 12 Chinese are under house arrest, a police spokesman said.

The investigation centers around two labor consultancy firms with offices in Prato, whose owners and some employees are accused of setting up a business helping non-EU citizens, mainly Chinese, to stay in Italy illegally.

Police said the most common tactic was to arrange fake hirings and issue false payslips to obtain residency documents. Once the residency permit was issued, the worker would be formally sacked, but in reality keep on working illegally.

The investigation also unveiled alleged criminal association, defrauding Italy's social security and pensions agency, inducing public officials to make false declarations.

Prato's Chinese community clashed with police over workshop inspections in July. The area is also the focus of an investigation into alleged money laundering between Italy and China.